Skill Gap In India – Is This The Reason Affecting Hiring?

India’s demographics indicate that the majority of its population will be composed of youths and, as such, become a major supplier of human resources to the global economy. According to data collected by the Ministry of Statistics and Programme Implementation, Government of India (Social Statistics Division), India has a relative advantage, at present, over other countries in terms of the distribution of youth population. As per India’s census, India has the largest population of youth in the world spanning a whooping 600 million youth as of the year 2018. India’s youthful population will become its most prized asset. However, the problem of a skill gap in India is making prospects less enticing. Unemployability seems to be a much bigger threat to India than unemployment.

If the skill gap in India continues on its current trajectory, most industries will be plagued by about 75-80 percent skill gap issues. This means about 20-25 percent will be skilled enough for the available jobs and labor employability will be at its lowest.

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Skill gap in India remains a big problem

To better understand the adverse economic implications of the skill gap in India, one needs to understand the meaning of a skill gap. In simple terms, the skill gap occurs when there is a mismatch between the demand and supply sides of the employment market. It is the persistent disconnect existing between the skills needed by an organization and the present capabilities of its workforce. This presents a difficulty for companies to grow or maintain competitiveness because the workforce does not have the skills to drive businesses forward.

The skill gap in India remains a major problem impeding the growth potentials of the economy. The International Labour Organization (ILO) is of the opinion that  India is staring at a 29 million skill-deficit by 2030. Accenture’s projection is that the skill gap in India will cause a loss of $1.97 trillion in terms of gross domestic product promised by investment in intelligent technologies over the 10 years if it is not controlled.

There are many factors that are attributed to causing the skill gap in India, however, experts identify the failure of the educational system as a primary cause of the problem. They point out that schools in India are not teaching students the skills necessary to succeed in today’s job market. While the basic concepts and principles are present in the college curriculum, there exists a gap in the teaching and learning pedagogy being followed. With 15 million youngsters entering the workforce each year, corporate India and research institutes seem to agree that 65-75% are not job ready or are unemployable. Research has it that the problem of the skill gap in India boils down to the low levels of youth employability across the country.

As schools are not teaching the right skills required to reduce the skill gap in India, companies also are apathetic towards providing job training for candidates. In India, little formal in-firm job training occurs, although this is partly because most small firms dominate the informal sector. This notwithstanding, only a small percentage of the manufacturing firms in India provide in-firm job training, which has contributed further to an increasing gap between skilled and unskilled labor in India.

Implications of skill gap on GDP

As the business world of today begins to get increasingly digitized, it has become more important that the workforce acquire the requisite skills necessary to maintain productivity. In India, there is an acute shortage of skilled labor. The skill gap in India has hit the IT sectors the most. According to IBM, at present, there is a shortage of at least three million cyber-security professionals in India. This bleak situation is likely to hit the other sectors soon if not adequately controlled.

As the percentage of skilled and unskilled labor in India keeps widening, the following explains how it will negatively affect India’s GDP:

It can bring about equilibrium in productivity

The skill gap in India will force employers to hire candidates based on their tradeoffs between wages and level of productivity. This means employers will only hire overeducated candidates if they believe the higher wages translate into extra productivity. Likewise, undereducated candidates will be employed if their lower-wage cost compensates for lower productivity.

A continued increase in attrition

Based on the current trend, the skill gap in India is expected to continue to plague the labor market. This would stem from a shortage of skills where there are not enough people who possess the needed skill to meet demand. As a result, the advancement of India’s economy will be left to a new generation of the few educated and skilled people. As such, industries experiencing a skill gap will face an increase in attrition.

It can lead to inflation and inequality

When the employability of the workforce is low, companies lose their bargaining power. Wages will increase at a rate greater than the rate of productivity. This excessive growth of wages enjoyed by a few who belong to the skilled workforce will create an inequality in income and cause inflation. The skill gap in India will also deter companies from investing in innovative technologies, as this will demand the employment of a specifically skilled workforce. The companies would thus produce relatively less-differentiated and lower-quality products. 

Transfer of funds to social welfare programs that cater for the unemployed

Seeing as the Indian economy might be unable to create enough jobs for its growing working-age population, the government will need to transfer more funds through social security schemes to provide income to the unemployed and underemployed. The financial burden exerted by the schemes meant for generating employment will result in lesser funds available for expenditure on education, healthcare and infrastructure. The teeming youthful population of India will become an economic burden unless it can find gainful employment.

Shortage of high-skill labor can restrain productivity and economic growth

Bridging the skills gap between work and education is necessary to sustain the productivity and growth of the economy. Further addition of undereducated people into the workforce will reduce the overall quality of the workforce. Skilled workers will work longer hours to sustain growth and this will impact their productivity. As a result, the prevalence of unskilled workers in India over skilled workers will slow down future economic growth.

Fortunately, India skill report of 2019 shows that there is an increasing number of employable youths in India. According to their research, the skill gap that plagued India has recently eased up, with employability rate jumping from 37% to 47.38% within a span of 5 years. This is as positive as it can get because unemployable youths automatically equal low economic output. High skill labor here goes beyond the regular elementary knowledge that youth are equipped with, it spans long across skills such as intelligence, diligence and productiveness. If these features are encouraged in the average Indian youth, the country can benefit on a larger scale.

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  • India Skills Report finds 46.21% of students employable. Hindu Business line – published on December 10, 2019
  • Skills gap puts $1.97tn growth at risk in India: Report. Millennium post,7th January 2019
  • On National Youth Day, learn how India can close its massive skill gap and deal with unemployment. India Today, by Roshni Chakrabarty, January 14th 2019.
  • Skill Gap: Mighty recruiter, 2020
  • India’s skill gap issue: The need for trained professionals is at an all-time high- by DQINDIA ONLINE, Data Quest, FEBRUARY 25th , 2020
  • Central  Statistics Office, Ministry of  Statistics and  Programme Implementation, Government of  India   (Social  Statistics  Division). (2017). Youths in India. New Delhi; Indian Government
  • Subhendu, K.R., and Bhagavan, B. (2014). Implications of Skill Incongruity on Leveraging India’s Demographic  Dividend. International Journal of Humanities and Social Science Invention, 3, 26–35

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